WEF: China Deserves Market Economy Status

December 11, 2016 marked the 15th anniversary of China’s entry into the World Trade Organization (WTO), a deadline for WTO members to recognize China’s market economy status in relation to anti-dumping investigations. However, some countries have expressed on various occasions that they would not grant China market economy status. Although the European Commission ordered an amendment to the European Union (EU) anti-dumping regulations on November 9, 2016, relevant procedures have yet to be enacted.

Item (a), Article 15 of the Protocol on the Accession of the People’s Republic of China outlines how WTO members should determine price comparability of Chinese products in anti-dumping investigations.

Sub-item (i) of Item (a), Article 15 stipulates that if investigated producers can clearly show that market economy conditions are driving the production and sale of their product, the importing WTO member should use Chinese prices to determine price comparability of the industry.

According to sub-item (ii), the importing WTO member may use a methodology not based on a strict comparison of domestic prices or costs in China if the producers under investigation cannot clearly show that market economy conditions prevail with regard to the manufacturing, production and sale of that product. This methodology refers to the “analogue country method.” The regulation is intended to allow investigating nations to choose to use data from a country at a similar development level to determine price comparability of products from China. If prices of similar products in the analogue country are comparatively lower, the normal value of products from China will drop accordingly, exacerbating the dumping situation. A direct result of the analogue country approach is that dumping imported products and anti-dumping duty rates will be manipulated to impact sales of China’s exports abroad.

When negotiating China’s entry into the WTO, all WTO members agreed that the analogue country method should only be applicable during a 15-year transition period. Item (d), Article 15 of the Protocol stipulates that in any event, the provisions of subparagraph (a) (ii) shall expire 15 years after the date of accession. Despite the fact that the Protocol doesn’t clearly define the deadline for the provisions of sub-paragraph (a) (i), they shall expire accordingly in view of the two subparagraphs’ indivisible logical relationship.

The analogue country method mentioned in subparagraph (a) (ii) of Article 15 of the Protocol is merely a technical caveat concerning anti-dumping investigations, not an indicator of a market economy. Therefore, the influence of its expiration should not be confused or exaggerated. As part of WTO rules, the Protocol stipulates the rights and obligations of other WTO members, as well as China. WTO members are obligated to stop using the “analogue country method” with regard to China when the agreed deadline arrives. China is entitled to lodge charges against those who violate the Protocol at the WTO Dispute Settlement Body. As an international organization operating according to defined rules, the WTO Dispute Settlement Body will surely produce a fair judgment.

The author is a professor at the School of International Law, China University of Political Science and Law.